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United States of America v. Native Wholesale Supply Co

October 3, 2011


The opinion of the court was delivered by: John T. Curtin United States District Judge


By order of United States District Judge Richard J. Arcara dated September 21, 2011 (Item 72), this case has been transferred to the undersigned for all further proceedings. Currently before the court are cross-motions of the parties for summary judgment (Items 55, 56).

This case involves the interpretation of the Fair and Equitable Tobacco Reform Act of 2004, codified at Title 7 U.S.C. § 518, et seq. ("FETRA"). As explained by the government in its memorandum of law in support of its motion for summary judgment, FETRA was enacted to facilitate the transition of the domestic tobacco market from a subsidized and regulated market into a free market system (Item 55, p. 1). The statute directs that, over a ten-year period, the Secretary of the Department of Agriculture is to make annual payments to tobacco farmers and producers as consideration for the termination of government quotas and price supports. These payments are made from a Tobacco Trust Fund which is funded principally through quarterly assessments on all domestic manufacturers and importers of tobacco products over the ten-year program. The Secretary, through the Commodity Credit Corporation ("CCC"), imposes the assessments based on the manufacturer's or importer's market share of the gross domestic volume of tobacco products sold. The market share is computed from documentation which the manufacturers and importers must provide to CCC pursuant to FETRA. Id., pp. 3-5.

In its motion for summary judgment, the government contends that Native Wholesale Supply Company ("NWS") has failed to pay its quarterly assessments as required by FETRA. It seeks a money judgment in the amount of the delinquent assessments and injunctive relief directing that NWS provide the documentation required by the statute. NWS has cross-moved for summary judgment, arguing that CCC has erroneously computed the amount of the assessment. Additionally, it contends that the statute is unconstitutional on various grounds.


The United States, on behalf of the CCC of the Department of Agriculture ("USDA") commenced this action on November 21, 2008 (Item 1). It alleged that CCC has notified Native Wholesale Supply Company ("NWS") of its quarterly assessments in accordance with FETRA. NWS has only partially paid its assessments for 2005, has failed to pay any part of its assessments for calendar years 2006, 2007, and 2008,*fn1 and has failed to submit the documentation required by the statute for the period January 2007 to the present. In its complaint, the government seeks a monetary judgment in the amount of $18,451,475.96, plus any assessments, interest, and/or penalties that have accrued or will accrue during the pendency of this action.*fn2 It also seeks injunctive relief compelling NWS to provide copies of the appropriate documentation required by FETRA. On December 23, 2008, NWS filed its answer to the complaint, asserting that the government's claims pursuant to FETRA violate its treaty rights and right to due process, and is an unconstitutional taking (Item 3).

On January 9, 2009, the government filed a motion for summary judgment (Item 7). NWS filed its opposition to the motion (Item 13) on March 16, 2009 and, at the same time, commenced a separate action designated as 09-CV-241 ("the 2009 action"). On May 4, 2009, NWS filed a motion to consolidate the two actions (Item 24).

In the 2009 action, NWS challenges the assessments for the years 2005 through 2008. It argues that the assessments are void and defective because they were computed using an improper "base period." NWS also argues that the government, through its enforcement of FETRA, has violated the Takings and the Due Process Clauses of the Fifth Amendment. On May 26, 2009, the government filed a motion to dismiss the 2009 action or, in the alternative, to stay the proceedings (Item 8).

In a Decision and Order/Report and Recommendation dated October 20, 2009, Magistrate Judge H. Kenneth Schroeder granted the motion to consolidate the cases (Item 38). He further recommended that the government's motion to dismiss the 2009 action should be denied, and that the government's motion for summary judgment in the original action be held in abeyance pending resolution of the issues raised in the 2009 action. In an order dated March 26, 2010, the Hon. Richard J. Arcara adopted the Report and Recommendation (Item 43).

On August 27, 2010, the parties filed cross-motions for summary judgment (Items 55, 56). Memoranda in opposition to the motions were filed by NWS (Item 65) and by the government (Item 66) on October 1, 2010. The government filed a reply memorandum on October 15, 2010 (Item 68). Oral argument was heard before Magistrate Judge Schroeder on October 19, 2010. The case was transferred to the undersigned on September 21, 2011 (Item 72. For the reasons that follow, the government's motion for summary judgment is granted, and the motion of NWS is denied.


The facts of the case are largely undisputed. NWS is a corporation chartered by the Sac and Fox Tribe of Oklahoma and maintains its office on the Seneca Cattaraugus Indian Territory in Gowanda, New York (Item 59, Exh. A, ¶ 2). Its primary business is the sale of tobacco products. Id., ¶ 3. Specifically, NWS imports cigarettes manufactured by Grand River Enterprises Six Nations, Ltd. ("Grand River") for resale to third parties. Grand River is wholly owned by Native Americans and produces, packages, and sells tobacco products on the Grand River Reserve in Canada. Id.

In 2005, NWS began reporting its tobacco removal*fn3 information to CCC as required by FETRA. It reported the removal of tobacco products into domestic commerce for the quarter beginning October 31, 2004 through the quarter ending September 30, 2008. Based on the removal reports, CCC assessed quarterly assessments from March 1, 2005 through December 1, 2008 (Item 59, Exh. B).

NWS timely filed a challenge to the 2005 assessments and requested an administrative hearing. Its appeal of its assessments was consolidated with those of three other manufacturers and/or importers. The parties raised several issues on appeal, including the contention that CCC used an improper "base period" to calculate the assessments (Item 59, Exh. C, p. 3). CCC issued its administrative determination on May 31, 2007 and rejected the argument regarding the "base period" (Item 59, Exh. C, pp. 4-5). Three other issues were resolved in favor of NWS, and CCC adjusted the assessments accordingly. Id., pp. 11-12. Thereafter, the Secretary issued assessments for fiscal years 2006, 2007, and 2008. NWS did not file formal challenges to those assessments, but its attorney stated that additional challenges were unnecessary "because a favorable decision on the appeal relating to 2005, would require the Secretary to recalculate assessments for all subsequent years" (Item 59, Exh. D, ¶ 2.

Arthur Montour, the President and owner of NWS, stated that it is his understanding "that NWS has filed with the Government all of the documents that are required pursuant to FETRA" (Item 59, Exh. A, ¶ 5). In support of its motion for summary judgment, NWS has submitted U.S. Customs and Border Protection ("CBP") forms that indicate that cigarettes were imported by an entity known as Livingston International, Inc., with NWS listed as the "Ultimate Consignee" (Item 59, Exhs. I, J, K, L, M). The Government has submitted the Administrative Record from the NWS appeal of the 2005 assessments, which includes the forms submitted by NWS pursuant to FETRA to compute its market share. The forms include a CCC form entitled "Report of Tobacco Product Removals Subject to Tax for the Tobacco Transition Payment Program Assessment" ("Removal Report"), a form from the Alcohol and Tobacco Tax and Trade Bureau ("TTB") entitled "Monthly Report--Tobacco Products Importer," and the CBP form entitled "Entry Summary" (Item 52).*fn4


NWS challenges its assessments on several grounds, primarily the agency's interpretation of FETRA. It also argues that FETRA violates the Takings and Due Process Clauses of the Constitution and certain Native American treaty rights. Finally, NWS argues that it was erroneously assessed for the importation of cigarettes by ...

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